Boeing Decline Could Signal Long-Term Top

Dow component The Boeing Company (BA) was trading nearly 10% lower ahead of Monday's opening bell after the Ethiopian crash of the new 737 Max 8 airliner, marking the second fatal incident in less than five months. China responded by grounding all Max 8s, and other groundings are likely to follow, affecting the market leader's 2019 profits and revenues. Taken together with persistent selling pressure since March 1, the stock may have topped out for this economic cycle.

The company had 330 Max aircraft ready for service at the end of 2018 as part of a multi-year roll-out to replace the 737 New Generation (NG) series. The 737 has been wildly popular since its introduction in 1967, and any controversy that affects market share could have a major impact on future earnings. It's especially dangerous in China, where the bad news for Boeing will likely improve sales and government sponsorship of the locally manufactured Comac C919.

Boeing stock posted an all-time high at $446 on March 1 after gaining more than 34% following December's decline to a 52-week low. It was set to open Monday at a six-week low near the 50-day exponential moving average (EMA) at $375, but that support level may not contain short-term damage, given the months required to investigate the Ethiopian crash. Deteriorating sentiment could weigh heavily on buying interest during this time, setting the stage for a steep decline that traps remaining shareholders.

BA Long-Term Chart (1992 – 2019)

A two-year downtrend ended at $16.07 in the fourth quarter of 1992, giving way to an uptick that reached new highs in 1995. The stock continued to post gains into 1997, finally reversing at $60.50 and losing 50% of its value in the next 15 months. The subsequent recovery wave mounted the 1997 high in 2000, but momentum failed to develop, generating a new high at $67, followed by a steep downturn that failed the breakout after the Sept. 11 attacks.

Selling pressure eased at an eight-year low in the mid-$20s in 2003, ahead of a strong uptick that posted impressive gains throughout the mid-decade bull market. Boeing shares broke out to a new high in 2005 and kept on going, rallying into the triple digits in 2007. The stock turned tail in 2008, dropping in an aggressive decline that accelerated during the economic collapse. The downtrend finally ended in 2009 at a horizontal support line (red line) in place for more than 10 years.

It took more than four years for the subsequent bounce to complete a round trip into the 2007 high, yielding an immediate breakout that stalled above $144. The stock tested new support for another three years, finally turning higher in a powerful trend advance following the 2016 presidential election. The rally continued into the March 2018 high at $371, ahead of a tough 2018 correction, and broke out to a new high once again in February 2019.

BA Short-Term Chart (2018 – 2019)

A Fibonacci grid stretched across the uptrend that started in December 2018 places this morning's open below the .382 retracement level at $388 and within the Jan. 30 continuation gap. This is a dangerous spot because it favors a rapid gap fill that drops the stock another 12 to 15 points into the .50 retracement level. In turn, that downdraft would generate a major test at the January breakout level, with a decline through $365 setting off another round of sell signals.

The on-balance volume (OBV) accumulation-distribution indicator topped out in February 2018 and posted a lower high when the stock hit a new high in October. It bounced back to this level and reversed with price on March 1, reinforcing a bearish divergence that could now power the downside. The low $300s are exposed in this bearish scenario, telling sidelined market players to keep their powder dry for now.

The Bottom Line

Boeing stock was set to gap down more than 40 points on Monday morning, marking the next stage of a decline that could signal a long-term top.

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